What is a Rent Roll? Meaning, Guide & Checklist
Purchasing investment properties can be a risky venture when you don’t have all the information to hand. Details can be missed, and you could end up buying a building that’s more trouble than it’s worth – with high delays in rent payments and the frequent, costly maintenance required to avoid tenants suing for safety issues.
A property’s rent roll is meant to counteract blind decision making when you are looking for profitable investments and has been used in real estate for years.
What Is a Rent Roll?
A rent roll by definition is a management tool that details properties, displaying legally required lease information and helping landlords track start and end dates of contracts, rental income by property, and even annual increases. A property’s rent roll can also help building owners/overseers process and track recurring issues.
What Is the Purpose of a Rent Roll?
Rental properties increased by 8.3% in the last quarter of 2021. With so many real estate companies handling multiple buildings, they needed a quick and easy way to review data.
When rent rolls were first developed, the system was a revolutionary concept that reduced the element of risk in purchasing properties.
A rent roll keeps vital property information in one place, aiding future sales to interested real estate buyers.
How to Predict Rent Roll Commercial Real Estate
Rent rolls aren’t just incredibly useful for property managers, they are also important in real estate. If you’re wondering how, then know this: it helps you calculate good and bad investments.
Say, for example, you wanted to buy a building that consisted of multiple commercial offices for hire. A rent roll report would allow you to delve into the information available to you – such as when each office has been rented, how long for, and any current occupiers who are leasing space in the property that would likely continue renting from you.
How Does a Rent Roll Work?
Still wondering what a rent roll is and how they work? Rent rolls can be produced in a variety of software applications, including manually inputting data into Excel, or utilising software that does part of the work for you. This collaboration of data allows for easy perusal and informed judgements.
Who Uses Rent Rolls?
Rent rolls are mostly used by property managers, landlords, and real estate investment companies.
They can be bought and sold on the private market to give insight into rental incomes in the area and help buyers judge the quality of a building. Well-maintained older buildings with clear service history listed in rent rolls may still be worth purchasing due to the aesthetic priorities of today’s renters.
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How is a Rent Roll Useful to a Property Manager?
Rent rolls compile the information required to efficiently maintain and look after multiple properties so that important details don’t get missed. Rent rolls were designed with a specific purpose in mind: enhancing the quality of services for tenants and landlords directly affected by the manager’s actions.
How to Create a Rent Roll
Now you understand the definition of a rent roll, it’s time to learn how to make one. A detailed rent roll report would include:
- Identifiers: Rent rolls should detail address and contact information first and foremost, as “identifiers” for each property. They could then list details about the area, including average incomes and average property prices.
- Unit Information: If the rent rolls are covering a unit, then it’s only useful to a property manager on a regular basis if it details important information about how many flats or offices there are and how much work there is to be done.
- Individual Properties: Each individual division should have its own subcategory that lists the number of doors and windows, square footage, bedrooms, bathrooms and other facilities.
- Tenant Details: Contractual lease agreements should be tracked at all times, and are an important part of an overall rent roll definition. Any agreements made (such as the rent due date and security deposit information) should be added here, including annual increases according to the rent value of your property.
- Rental Income: An annual total rental income will be displayed at the end of a property’s rent roll report.
Altogether, therefore, a rent roll gives a great overview of costs and income – much like any balance sheet – with just a few more details.
It helps property managers stay on top of their workload and calculate the disposable income they have to spend. Rent rolls can work in tandem with a property management software to manage complex priorities and make data-backed decisions.
Rent Roll Checklist for Property Managers
A major cause of burnout among property managers is the bad business that gets careless brought into the rent roll for the sake of growth. A big list where nobody pays their debts isn’t worth compromising a smaller but consistent income that allows you to budget accordingly.
When determining how a rent roll is useful to a property manager, we need to take a look at the management properties which are actually worth adding to your overall portfolio. Often, it’s what you say “no” to that will allow your rent roll to succeed.
We interviewed Darren Hunter from Inspired Growth Training, who shared some tips to help you avoid making wrongful decisions and instead grow a profitable property’s rent roll.
1. Annual Contract Value
As a fee maximiser, Darren believes in taking to account your expertise and proven track record when determining your fees and remaining firm in negotiations. If you must give discounts, set an acceptable range that isn’t compromising your needs. “You can’t just be breaking even,” says Darren. How an owner negotiates fees with you is often a tell-tale sign of the quality of the management and the likely future of a property’s rent roll. Difficult owners in most cases are often difficult due to money, according to Darren, whilst owners who share the same values as you (i.e. the type of owners you want) will be more reasonable and will appreciate the true value of managing quality properties.
2. Rent
A rent roll report should list the potential income someone could gain from a property.
“Be wary of low rent properties,” says Darren. According to him, low rent usually means lower property management fees and attracts low-end tenants – both of which you do not want if you are aiming for a profitable earning portfolio. Determine an acceptable price range for rent and avoid going below this benchmark.
3. Location and Distance
As they say in real estate: location, location, location!
Ideally, you would want to avoid suburbs and streets that have notoriously high crime rates. It also depends on the distance they cover and the detail you go into. Longer distances mean higher costs due to the time and expenses required to travel and service the properties. Always keep in mind that a substantial percentage of your rent roll should be located near you.
4. Extreme Landlords
A professional and amicable customer relationship is one of the pillars of a high-quality rent roll.
A property management software can help you achieve this, but equally important is assessing the character of a landlord before bringing them into your business. Be aware of any extreme behaviour of owners in relation to financial and emotional motives. These may include:
- Unreasonable expectations regarding tenancy laws, repairs, wear/tear, etc.
- Not wanting to spend money on repairs.
- Requiring cheap fees.
- Poor quality property.
- Requires rent levels that are unrealistic.
- Unreasonable tenant expectations and criteria.
5. Quality of Property
Be wary of buildings in less than reasonable cleanliness, quality and maintenance condition. This will all be clear in a property’s rent roll report. Newer homes don’t usually translate to lower maintenance costs and older structures don’t necessarily mean poor quality. It’s important to always be objective when checking out a property and not be fooled by that fresh coat of paint.
6. Property Structure
To build a high-quality rent roll, you also have to be discriminating in the style and structure of the property to be managed. This usually ties in with the low rent criterion discussed earlier. From Darren’s experience, a profitable rent roll usually doesn’t include older flats and units unless they are in good shape and exceed your desired rent level. In such cases, Darren suggests increasing your property management fees to maximise your income from low-cost housing.
Don’t forget to track and cross-check every detail in a property’s rent roll.
7. Furniture
Furnished properties often require management consent due to complications associated, like wear and tear issues. Ideally, you would not want to manage partly or fully furnished long term rental properties, unless it caters to high-ended executive types.
A useful rent roll starts with keeping a critical eye on the new management you bring into the business.
By setting benchmarks, you can determine the right owners, properties, or tenants that will help you grow an ideal rent roll in real estate – one that everyone can be proud of working in.
Applications to Help Property Management
One document alone isn’t enough to aid property managers and investors decide how to predict changes to rent roll commercial real estate and calculate when action is needed.
MRI offers a range of real estate software to transform the way communities live, work and play. You can manage rental properties, finance, assets, and more.
Reach out if you have more questions like “What is a rent roll?”, or better yet, take a look at what we can do with our no-obligation, free demonstration. Contact us today.
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